1 Gross Domestic Product (GDP)

1.1 Real and Nominal GDP

  • Enter into the World Bank’s Human Development Indicators database using the link:

<https://databank.worldbank.org/source/world-development-indicators>

  • In Country select Colombia
  • In Series select GDP (current LCU)
  • In Time select VIEW RECENT YEARS: 50
  • Apply changes and download the data using Download options > Excel at the upper right corner of the platform
  1. Make a plot of the Nominal GDP of Colombia where the x-axis corresponds to the years and y-axis corresponds to the value of the Nominal GDP. (4 points)
  1. Explain why Nominal GDP is not a good measure of the aggregate production for Colombia. (4 points)

The Nominal GDP captures the variation in quantities and prices related to production of Colombia in monetary terms. Therefore it is difficult to identify what is really increasing or decreasing. A better metric to measure final production in Colombia would be the Real GDP which tries to eliminate the effect that prices have on production to examine the increase or decrease in quantities.

  • In Country select Colombia
  • In Series select GDP (constant LCU)
  • In Time select VIEW RECENT YEARS: 50
  • Apply changes and download the data using Download options > Excel at the upper right corner of the platform
  1. Make a plot of the Nominal GDP and the Real Nominal GDP of Colombia where the x-axis corresponds to the years and y-axis corresponds to the values of the Nominal GDP and Real GDP. (4 points)
  1. Explain why Real GDP is a better measure of the aggregate production than Nominal GDP for Colombia. (4 points)

Real GDP is a better measure of the aggregate production than Nominal GDP because it tries to control for the effect that prices have on production (measure in monetary terms). In the case of Colombia the Nominal GDP increased during the last years of the plot but it is mainly because of a persistent increase in prices.

  1. Explain why Real GDP and Nominal GDP have the same value in one year. (4 points)

Real GDP and Nominal GDP have the same value in the year 2015 because this is the base year that was used to calculate the Real GDP for Colombia. This can be seen in the previous plot.

  • In Country select Colombia
  • In Series select Population, total
  • In Time select VIEW RECENT YEARS: 50
  • Apply changes and download the data using Download options > Excel at the upper right corner of the platform
  1. Calculate Real GDP per-capita for Colombia. (4 points)
  1. Explain why Real GDP per-capita is a better measure for the production than Real GDP for Colombia (4 points)

Real GDP per-capita is a better measure for the production than Real GDP because it controls for the population. Making a population adjustment is important because production can increase simply because there are more people. In territories where there are more people, more production is expected but not because they are more productive but because there is more workforce. Therefore it is better to use per-capita data.

  1. Plot the growth of the Real GDP per-capita for Colombia. (4 points)

2 Inflation

  1. Calculate the GDP Deflator using the information collected in the previous section. (4 points)
  1. Calculate the annual inflation for Colombia using the GDP Deflator. (4 points)
  1. Make a plot of the inflation where the x-axis corresponds to the years and y-axis corresponds to the values of the inflation. (4 points)
  1. Describe what you see in the plot and point out why is important for a company in a country to have an economic macroenvironment with a low and stable inflation rate. Hint: Review the videos found in Primer corte 30% > Learning Resources > Links of interest. (6 points)

Based on the information available, Colombia has had periods of persistent price increases where for this period the highest inflation rate is presented in the year 1990. For a company in a country it is important to have an economic macroenvironment with a low and stable inflation rate because: